An eventful start to 2025
An eventful end to the month looks like ending as it started on a positive note, with the impact of the DeepSeek news at present, after the initial shock, not to have rocked market sentiment too much. As predicted, the Federal Reserve left interest rates unchanged, and while delivering a reasonably hawkish tone, Mr Powell’s press conference was, as anticipated, a relatively uneventful one. Interest rates in the US are not coming down any time soon; earliest mid-summer, that’s got to be questionable. Yesterday, we received the 1st estimate for US GDP for the last quarter and 2024; the estimate continues to record an economy that appears to be humming along reasonably well. The US economy grew in the final quarter at an annual rate of 2.3%, which may be a tad below market estimates, but it was good enough. Year-on-year growth came in at 2.8%, roughly in line with 2023, with the consumer continuing to drive the bulk of that growth. The question remains: at what point will the consumer run out of money?
In contrast, the eurozone continues to struggle to grow its economy; yesterday, there was further evidence of that with lacklustre GDP data from Germany and the broader eurozone. The ECB duly cut interest rates by 25 basis points as anticipated, and the market immediately priced in the expectation of more to come. By the year’s end, the difference between the US and Europe could be over 2%. Somehow, I don’t think that will be the case.
Several of the Mag 7 reported earnings this week, with the exception of Microsoft, which saw a slowdown in its cloud computing, partly blamed on its inability to build enough data centres fast enough, the reports were taken well enough by the market. One old darling, IBM, earnings report was particularly well received by the market.
While discussing investor sentiment with a colleague yesterday, we both agreed that there seems to be a quiet, calm atmosphere at present, at least. Earnings season is trucking along with a few shocks, confidence remains in the US economy, and rates are coming lower in Europe. I guess what’s not to like?
Next week, the Bank of England will announce its decision on interest rate policy; we are expected to follow Europe’s lead, cutting by 25 basis points and hinting at more to come. Ms Reeves has received some criticism for her downbeat assessment of the UK economy and has attempted to pitch a more optimistic tone in recent weeks.